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Principles of Macroeconomics Study Set 8
Quiz 11: Measuring the Cost of Living: Part A
Path 4
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Question 21
Short Answer
Suppose Stan Musial earned $115,000 in 1947.If the CPI was 82 in 1947,and was 246 in 1990,what is Stan Musial's 1947 salary in 1990 dollars?
Question 22
Short Answer
If the CPI increased from 215 to 218 between the years 2012 and 2013,while the nominal interest rate increased from 3.25% to 3.80%,what is the real interest rate in 2013?
Question 23
Short Answer
Suppose that the price of one ear of corn was $0.05 in 1920,that the CPI in 1920 was 10,and that in 1990 the CPI was 180.What is the price of a 1920 ear of corn in 1990 dollars?
Question 24
Essay
Jay and Joyce meet George,the banker,to work out the details of a mortgage.They all expect that inflation will be 2 percent over the term of the loan,and they agree on a nominal interest rate of 6 percent.As it turns out,the inflation rate is 5 percent over the term of the loan. a.What was the expected real interest rate? b.What was the actual real interest rate? c.Who benefited and who lost because of the unexpected inflation?
Question 25
Short Answer
In 1954,Mickey Mantle earned $21,000 playing for the New York Yankees.The CPI in 1954 was 26.9,and the CPI in 2010 was 218.06.What is Mickey Mantle's 1954 salary in 2010 dollars?
Question 26
Short Answer
If the nominal interest rate is 8.3% and the inflation rate is 4.4%,what is the real interest rate?
Question 27
Essay
The CPI assumes a fixed basket of goods over time.In fact,consumers are likely to change purchasing behavior over time by purchasing less of the goods whose prices have risen by relatively large amounts and by buying more of the goods whose prices have risen less or maybe even fallen.What problem does this cause for measuring the cost of living?
Question 28
Short Answer
If the real interest rate is 6.8% and the inflation rate is 3.9%,what is the nominal interest rate?
Question 29
Essay
What do real interest rates account for that nominal interest rates do not?
Question 30
Essay
Compute how much each of the following items is worth in terms of today's dollars using 177 as the price index for today. a.In 1926,the CPI was 17.7 and the price of a movie ticket was $0.25. b.In 1932,the CPI was 13.1 and a cook earned $15.00 a week. c.In 1943,the CPI was 17.4 and a gallon of gas cost $0.19.
Question 31
Short Answer
If the real interest rate is 10.3% and the nominal interest rate is 12.6%,what is the inflation rate?
Question 32
Short Answer
Michael Jordan's rookie salary in 1984 was $550,000.The CPI in 1984 was 103.9,while the CPI in 2010 was 218.1.What is Michael Jordan's rookie salary in 2010 dollars?
Question 33
Short Answer
Suppose that the price of one gallon of milk was $0.25 in 1950,that the CPI in 1950 was 25,and that in 2000 the CPI was 200.What is the price of a 1950 gallon of milk in 2000 dollars?
Question 34
Short Answer
If the inflation rate decreased from 3.33% to 2.90% between October and November,while the nominal interest rate increased from 4.75% to 4.80%,what is the real interest rate in November?
Question 35
Essay
In a simple economy,people consume only 2 goods,food and clothing.The market basket of goods used to compute the CPI consists of 50 units of food and 10 units of clothing.
a.What are the percentage increases in the price of food and in the price of clothing? b.What is the percentage increase in the CPI? c.Do these price changes affect all consumers to the same extent? Explain.
Question 36
Short Answer
Suppose the Tooth Fairy paid 50 cents for a tooth in 1970.The CPI in 1970 was 38.8,while the CPI in 2010 was 218.1.What is the value of the Tooth Fairy's payment in 2010 dollars?
Question 37
Essay
Suppose the typical basket for the calculation of the CPI includes one computer.Since computers have gotten better over time as a result of technological change,what problem does this create for calculating the CPI?